By Maurice Chang It would not be an exaggeration to say that after the foundation of the ‘foundry’ model by establishing TSMC in 1987 and following the adoption of the ‘fabless’ model of chip manufacturing by companies like Nvidia and Qualcomm in the nineties, the semiconductor industry was completely restructured. This has enabled companies manufacturing chips for various applications to focus on innovation in chip design without incurring any capital expenditure on building, owning and operating innovative and expensive factories (fabs) for chip products. The fabless model has led to rapid advances in mobile technology, artificial intelligence, graphics processing and the Internet of Things, driving digital transformation in many industries.

Although fabless chip manufacturing really took off in the late nineties, the concept only took off in the eighties. In 1984, Campbell and Banato, electrical engineers with previous experience at chip manufacturing companies such as Intel, National Semiconductor, founded Chips and Technologies, the first fabless company (although the term did not exist then). At a time when the concept of silicon foundry was still nascent, stepping into the industry with no mechanism to manufacture one’s own chips was a bold move. But the founders of the company wanted to overcome the limitations (in rendering various graphical images on a computer monitor) of Intel or AMD logic chips available at the time.

Also Read >>> From Chandni Chowk: After Modishah, Kejriwal…

For that, they introduced the ‘graphics’ chip in the market keeping in mind the sole purpose of enhancing the images seen on the computer. It may be the first chip made for a specific purpose, breaking away from ‘general purpose’ chip manufacturing such as memory or logic chips. For the production of this chip, Chips and Technologies used to rely on the additional production capacity of chip manufacturing companies in Japan or South Korea. Graphics chips from Chips & Technologies quickly became popular due to their superior performance in enhancing the visibility of computer screens, as well as their lower cost compared to conventional chip manufacturing companies.

Later, the company began producing ‘chipsets’ that combine the microprocessor, memory and other components on the computer’s motherboard to work in a coordinated manner. Chips & Technologies emerged as a leading graphics chip and chipset maker in the mid-nineties, challenging the leading logic chip makers of the time. As expected, it was acquired by Intel in 1997 for a whopping $43 million. The leaps made by this first ‘Fableless’ company, which started with an initial capital of barely 10-15 million dollars, in just a decade was astounding. The success of Chips & Technologies proved that fabless business models can be successfully implemented.

One of the biggest beneficiaries of the ‘foundry’ model and the parallel fabless revolution is Apple, famous for devices like the iPhone, iPad, MacBook and currently the world’s most valuable company by stock market valuation. Even today, many people do not know that Apple itself designs the ‘application processor’ chip required for the operation of the iPhone. If you look carefully at the back of the i-phone or i-pad, you will see ‘Designed by Apple in California’ engraved on it. This design includes not only the phone but also the chip design. In that sense, it will not be wrong to say that Apple is the biggest ‘fabless chip’ company in the world today.

When Steve Jobs launched the first version of the i-Phone, Apple focused all its attention on the design of the phone and its operating system software, ‘i-OS’, designed to run it efficiently. So Apple outsourced the design and manufacturing of the phone’s processor chip to Samsung. Along with the processor chip, Apple’s revolutionary device used many other chips – Intel’s NAND memory chip, the audio processor chip used to analyze voice messages from Wolfson, the chip for connecting to the mobile network from Germany’s Infineon, thus Apple did not design any of the chips used in the phone itself.

But this situation soon changed. Jobs’ ambition was that Apple should design every important (hardware or software) component used in the iPhone. Accordingly, Apple started taking one step at a time. Within a year of the launch of the first version of the iPhone, Apple acquired PA Semi, an American fabless chip company. PA Semi was an expert in designing chips that could operate at high efficiency while using minimal power. At the same time, Apple started hiring the best chip designers in the semiconductor industry.

Two years later, when Apple announced the fourth version of the iPhone (i-Phone 4), the processor chip it used was explicitly mentioned because the chip (dubbed ‘A4’) was designed by Apple itself. With the exception of Samsung (which is active in semiconductors as well as electronics), this was the first time a smartphone company designed the processor chip that would be used in the device. Designing a chip for a smartphone, which is much smaller than a computer but not a fraction behind in performance, is a very complex and expensive process, so most phone manufacturers used to (and still do) buy the chips used in them from other chip manufacturers. Apple, however, has invested heavily in research to master chip design and has set up independent chip design centers in the US, Germany and Israel.

The positive effect of this strategy of Apple started to be seen immediately. Since the hardware, processor chip and operating system of the phone are manufactured by Apple itself, Apple’s phones often work seamlessly, smoothly and flawlessly compared to other companies’ phones. In just four years after the launch of the first version of the i-Phone, Apple became the most profitable company in the field despite stiff competition from all other smartphone makers. Reputed companies like Nokia, Blackberry were shaken in front of Apple. Other East Asian smartphone makers (with the exception of Samsung) have had to focus on low-cost and low-return phones to sell in low- to middle-income countries like India. In 2010, only three silicon foundries namely TSMC, Samsung and Global Foundries could produce the processor chip designed by Apple. The situation today is that only TSMC has the capability to manufacture the sophisticated processor chips required for the iPhone 15 or 16. From that point of view, the supply chain of processor chips used in Apple’s i-phone or other digital products is very unique. That chip is designed by Apple itself in the US, Germany or Israel, manufactured only by TSMC in Taiwan, while the assembly and testing of the entire phone with that chip is done mainly by Foxconn and to some extent by Taiwanese companies such as Pegatron or Wistron in China (although since the Covid era Vietnam and India have been added to it). But no one will disagree that Apple and TSMC are an extremely successful example of the combination of fabless and silicon foundry in terms of chip design and further its production.